Over the many years that you are likely to own it, your
home should become an important part of your financial net
worth -- that is, the difference between your assets (financial
things of value that you own such as bank accounts, retirement
accounts, stocks, bonds, mutual funds, and so on) and your
liabilities (debts). Why? Because homes generally increase
in value over the decades while you're paying down your
loan (mortgage debt) used to buy the home.
Even if you're one of those rare people who owns a home
but doesn't see much appreciation (increase in the home's
value) over the decades of your adult ownership, you will
benefit from the monthly forced savings that results from
paying down the remaining balance due on your mortgage.
Retirees will tell you that one financial joy of retirement
is owning a home free and clear of a mortgage.
All that home equity (which is the difference between the
market value of a home and the outstanding loan on the home)
can help your personal and financial situation in a number
of ways. If, like most people, you hope to someday retire,
but (also like most people) saving doesn't come easily,
your home's equity can help supplement your other sources
of retirement income.
Tapping into equity
How can you tap into your home's equity?
Some people choose to trade down -- that is, to move
to a less costly home in retirement. Sell your home for
$250,000, replace it with one costing $150,000, and you've
freed up $100,000. Subject to certain requirements, you
can sell your home and realize up to $250,000 in tax-free
profits if you're single; $500,000 if married.
Another way to tap your home's equity is through borrowing.
Your home's equity may be an easily tapped and low-cost
source of cash (the interest you pay is generally tax-deductible).
Some retirees also consider what's called a reverse mortgage.
Under this arrangement, the lender sends you a monthly
check you can spend however you want. Meanwhile, a debt
balance (that will be paid off when the property is finally
sold) is built up against the property.
Balancing your investment
In your zest and enthusiasm to buy a place
and make it your own, be careful of two things.
Don't make the place too weird.You'll probably want
or need to sell your home someday, and the more outrageous
you've made it, the fewer the buyers it will appeal to
-- and the lower the price it will likely fetch. If you
do make improvements, focus on those that add value: for
example, skylights, a deck addition for outdoor living
area, updated kitchens and bathrooms, and so on.
Beware of running yourself into financial ruin. Changing,
improving, remodeling, or whatever you want to call it
costs money. We know many homebuyers who have neglected
other important financial goals (such as saving for retirement
and gaining the tax benefits of doing so) in order to
endlessly renovate their homes. Others have racked up
significant debts that hang like financial weights over
their heads.
Ready to Buy or Sell a home? Contact
Jan Arnold today!
Jan Arnold
Realtor, ABR, SRES, CSP, CRS
Office: (757) 757-449-8732
Fax: (757) 426-5966
Toll Free: (866) 591-6683 (MOVE)
jarnold@roseandwomble.com
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